NYT editorial: The State of Financial Reform

A Step Forward on Pay

It sounded good when the Treasury’s pay czar, Kenneth Feinberg, announced that top executives at Citigroup, Bank of America and the other five institutions surviving at taxpayers’ expense would see their compensation packages cut in half this year and their cash salaries reduced by 90 percent.

If you read the fine print you will discover that these reductions apply only to the remaining two months of 2009. Mr. Feinberg might be equally tightfisted when he sets pay for all of 2010 — he should be — but there is no guarantee. And as soon as any of these institutions pay the government back, they will be free of the constraints.

Mr. Feinberg’s job was always fated to be a sideshow. Far more important are the proposed guidelines that the Federal Reserve has come up with to align the risks taken and the rewards earned by executives, traders and loan offers at the nation’s 28 biggest banks.

Fed officials get the basic idea, that bankers’ compensation must be structured in a way that makes them think twice before they place bets that could lead their institutions (and the rest of us) over the cliff again. Their guidelines unveiled last week are a good start. But we fear they may still give banks too much leeway.

(More here.)